December 20, 2008

Fee Arbitration: Attorney’s Rejection Of MFAA Adverse Arbitration Award And Failure To Timely Prosecute Subsequent Litigation Within Five Year Rule Repudiated Prior Rejection So Award Could Be Confirmed To Judgment

Sixth District’s Holding Based On Furthering Client Protections Under MFAA.

The Mandatory Fee Arbitration Act (MFAA), Business and Professions Code section 6200 et seq., is a statutory scheme by which a client can attempt to inexpensively arbitrate fee disputes with an attorney without resorting first to formal litigation. For those of you wanting more information on this scheme, a good description of it is provided in the next case we explore, Perez v. Grajales, Case No. H031726 (6th Dist. Dec. 19, 2008) (certified for publication) (Slip Opn., at pp. 16-20), a 3-0 Sixth District opinion authored by Justice Duffy.

Perez also dealt with an interesting factual situation not confronted by prior jurisprudence in the MFAA area. After client was awarded $173,715 in fee arbitration under the MFAA, her attorney filed superior court litigation that had the effect of rejecting the arbitration award. Client also cross-complained in the litigation brought by attorney. However, neither attorney nor client prosecuted their actions so that they were brought to trial within the mandatory five-year rule, resulting in dismissal of both actions. Client then moved to have judgment entered on the arbitration award, a request denied by the trial court. Client appealed and obtained a reversal such that the trial court was directed to enter judgment on the prior arbitration award.

The basis for the reversal was straightforward: attorney’s failure to diligently prosecute his complaint, resulting in an involuntary dismissal, was tantamount to a repudiation of attorney’s prior rejection of the arbitration award.

The legal underpinnings came primarily from previous cases where the same result had been reached in judicial arbitration proceedings involving voluntary dismissals, with the Sixth District seeing no practical distinction between a dismissal that is voluntary and one that is involuntary and also finding the repudiation concept applies equally to MFAA arbitration and judicial arbitration. (See, e.g., Herbert Hawkins Realtors, Inc. v. Milheiser, 140 Cal.App.3d 334 (1983) [judicial arbitration; voluntary dismissal without prejudice]; Calderon v. Kane, 36 Cal.App.4th 1663 (1995) [same factual pattern; followed Herbert Hawkins]; Kelley v. Bredelis, 45 Cal.App.4th 1819 (1996) [judicial arbitration award; voluntary dismissal with prejudice]; Corell v. Law Firm of Fox and Fox, 129 Cal.App.4th 531 (2005) [MFAA arbitration; attorneys voluntarily dismissing their action but cross-complaining later in client action was repudiation of prior rejection of MFAA arbitration results in favor of client].)

Justice Duffy also buttressed the Court’s holding based on the consumer-oriented policies underlying MFAA and the unfairness of deciding the award could not be confirmed: “However, the alternative result urged by [attorney] here would (1) permit the attorney to prevail in a fee dispute without an adjudication in his favor on the merits, (2) nullify the only decision in which the merits of the controversy were considered, (3) result in potential ambiguity by placing the parties back in the position they were in before arbitration was commenced, and (4) ultimately subvert the MFAA process by precluding the client from obtaining any recourse against her attorney where her claim was that she was substantially overcharged.” (Slip Opn., at p. 29.) The Sixth District also expressed a lament that the entire process in the case before it “was neither effective nor inexpensive.”